Phone payments work through a payment processor that reads the card details you enter
To accept credit card payments by phone, you need a merchant account — a bank account that lets you process card transactions — and a payment processor that handles the actual charge. The customer reads their card number, expiration date, and CVV to you over the phone. You enter those details into the processor's system (either a website, app, or phone keypad), and the processor sends the charge to the customer's bank. The money lands in your merchant account, usually within one to three business days.
The main difference from in-person payments is that you cannot swipe or insert the card, so the processor marks it as a "card-not-present" transaction. This category carries higher fraud risk, so fees are typically higher and some processors require extra verification steps.
Key Takeaways
- You need both a merchant account (through a bank) and a payment processor (a separate company that handles the transaction) to accept phone payments.
- Card-not-present transactions cost more in fees than swiped payments because the fraud risk is higher.
- Popular processors for phone payments include Square, Stripe, PayPal, and Clover, each with different fee structures and features.
- You must store card details securely or not store them at all — PCI compliance rules explore even to small businesses taking occasional phone payments.
Merchant accounts and payment processors are two separate things
A merchant account is a bank account designed to receive card payments. Your regular business checking account cannot receive credit card deposits directly. You open a merchant account through a bank, credit union, or a payment processor that partners with a bank on your behalf.
A payment processor is the company that actually processes the transaction — they collect the card details, send them to the card networks (Visa, Mastercard, American Express), and handle the money flow. Some processors (like Square or Stripe) partner with a bank to provide the merchant account as part of their service. Others require you to open a merchant account separately and then connect it to their processor.
For phone payments specifically, you will use the processor's phone payment interface. This might be a website where you log in and enter card details, a mobile app with a keypad, or a phone line you call to enter details using your phone's keypad (less common now). The processor then deposits the money into your merchant account.
Card-not-present fees are higher than in-person payments
When you cannot physically swipe or insert the card, the processor charges you a higher rate because the fraud risk is higher. A typical in-person swiped transaction might cost 1.5% to 2.5% of the sale plus a per-transaction fee. A card-not-present transaction typically costs 2.5% to 3.5% plus the per-transaction fee.
Some processors also charge a monthly minimum, a statement fee, or a gateway fee (a fee just for using their system to enter card details). Read the full fee schedule before signing up — the lowest percentage rate is not always the lowest total cost.
Chargebacks (when a customer disputes the charge and the card issuer reverses it) are more common with phone payments because there is no physical card present to verify. If you receive a chargeback, you typically lose the sale amount plus a chargeback fee of $15 to $100.
Popular processors for phone payments and their basic structure
Square lets you enter card details on their website or mobile app. They charge 2.6% plus 10 cents per transaction for card-not-present payments. There is no monthly fee. You can also use Square's phone payment link, which sends the customer a text with a link to enter their own card details (reducing your fraud risk).
Stripe charges 2.9% plus 30 cents per transaction for card-not-present payments through their dashboard or API. They have no monthly minimum. Stripe is more technical than Square and works better if you are building a custom system or integrating payments into software.
PayPal charges 3.49% plus 49 cents per transaction for phone payments through their Virtual Terminal. They also offer PayPal Here, which works on a mobile device. There is no monthly fee, but some features require a paid account.
Clover is designed for small businesses and restaurants. They charge 2.65% plus 10 cents per transaction for card-not-present payments if you use their Virtual Terminal. They also sell point-of-sale hardware if you want to accept in-person payments later.
The steps to set up phone payment processing
First, choose a processor based on your volume, fee tolerance, and how often you will take phone payments. If you take payments only occasionally, a processor with no monthly minimum (Square, Stripe, PayPal) is usually better than one with a monthly fee.
Second, sign up for an account with the processor. You will provide your business name, address, tax ID, and bank account details. Most processors verify this information within one to three business days. Some may ask for a voided check or a business license.
Third, log into the processor's dashboard and locate the phone payment or Virtual Terminal feature. This is where you will enter card details when a customer calls. Some processors call this "Virtual Terminal", others call it "Phone Payments" or "Card Entry".
Fourth, test a transaction with a test card number (the processor will provide this). Make sure the money flows to your bank account correctly and that you understand the fee deduction.
PCI compliance applies even if you take phone payments occasionally
PCI DSS (Payment Card Industry Data Security Standard) is a set of rules for how you handle card data. Even if you take only one phone payment per month, you must follow these rules or face fines.
The simplest way to stay compliant is to never store card details yourself. Use the processor's phone payment interface (their Virtual Terminal or app) and let them store the data. This shifts most of the compliance burden to them.
If you must store card details (for example, to bill a customer monthly), you cannot store the full card number, expiration date, and CVV together. You also cannot store them in plain text or in an unencrypted email. Most small businesses avoid this entirely by using the processor's recurring payment feature instead, which stores the card securely on the processor's servers.
If you write down card details on paper, that paper must be kept in a locked location and destroyed securely (shredded, not thrown in the trash). Do not take photos of cards or store them in your phone's notes app.
Reducing fraud risk when taking phone payments
Phone payments carry higher fraud risk because you cannot verify the customer's identity the way you can in person. A few steps reduce that risk without making the process too slow.
Ask for the cardholder's name, address, and zip code. Enter these into the processor's system — most will run an Address Verification Service (AVS) check that confirms the address matches the card issuer's records. A mismatch does not always mean fraud, but it is a warning sign.
Ask for the CVV (the three-digit code on the back of the card). This proves the customer has the physical card in hand. Never store the CVV after the transaction is complete.
For high-value transactions, consider asking for a photo ID or a second form of verification. Some processors offer 3D find, a system that sends the customer a text or email to confirm the purchase before the charge goes through.
Keep records of who called, when, and what they ordered. If a chargeback comes in later, this record helps you dispute it with the processor.
Frequently Asked Questions
Can I use my personal bank account to receive credit card payments?
No. Personal bank accounts are not designed to receive card payments, and most banks will freeze the account or close it if they detect card transactions. You need a business bank account and a merchant account (which may be the same account if your processor provides it, or separate if you open one through a bank).
What happens if a customer disputes the charge?
The customer's bank reverses the charge and removes the money from your merchant account. You then have a window (usually 7 to 10 days) to dispute the chargeback by providing evidence that the transaction was legitimate — an order confirmation, a recording of the call, or a signed receipt. If you lose the dispute, you lose the sale amount plus a chargeback fee.
Do I need a separate phone line to take payments?
No. You take the payment over your regular phone line, then enter the card details into the processor's system on a computer or mobile device. You do not need any special phone equipment unless you want to use an older system that lets customers enter card details using their phone keypad (Interactive Voice Response), which is rare now.
Can I email a customer a payment link instead of taking their card details over the phone?
Yes. Most processors let you generate a payment link and send it via email or text. The customer clicks the link and enters their own card details on a find page. This reduces your fraud risk and is more find than you typing their card number. Square, Stripe, and PayPal all offer this feature.
What is the difference between a Virtual Terminal and a mobile app for phone payments?
A Virtual Terminal is a website where you log in and enter card details on a computer. A mobile app does the same thing on a phone or tablet. They work the same way — the difference is just the device. Choose based on where you usually are when you take payments.